ESG-Linked Racial Index Created to Spur Equality Push in Brazil

(Bloomberg) -- A group of Brazilian institutes and companies helped create an index to measure racial equality as corporations come under increasing pressure to advance the social component of their environmental, social and governance (ESG) goals.

The ESG Racial Equity Index measures racial imbalances at companies based on workforce composition, average wages and the racial distribution in the region where the company operates, according to the the Pact for the Promotion of Equity, which put together the gauge. Organizations adopting it will be independently audited, and their ratings will be included in their ESG metrics.

While the index is voluntary, the group is betting on a ripple effect as large companies ask their suppliers and spur competitors to join, according to Jair Ribeiro, who coordinates the Pact, managed by the Association for the Promotion of Racial Equity, a private, nonprofit entity.

Protests over systemic racial inequality that rocked the U.S. last year have reverberated across the world, sparking more investors to take seriously that companies need to act aggressively on the problem. Isolated actions taken so far by the government and corporations haven’t done enough to advance racial equality, said Gilberto Costa, executive director at JPMorgan Chase & Co. in Brazil and also a coordinator of the Pact.

Leadership Positions

The Brazil Institute of Geography and Statistics estimates that Black people make up about 56% of the country’s population. Less than 30% of management or leadership positions at the nation’s companies are occupied by Black people, Costa said.

The index will also score the investments companies make to reduce gaps in Brazil’s education system, including corporate efforts to improve the quality of schooling in their nearby communities. As Black people account for a disproportionate share of Brazil’s poorest, they rely mostly on public education to compete in the job market, creating deep-seated structural inequalities, Ribeiro said.

The gauge was built by a team of economists with input from people in a range of backgrounds, including lawyers, financial finance professionals,academics and those from industries such as mining, retail and banking.

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